D.C. Speaks: Chief Grunt on Bankruptcy Bill - It Had a Price

WASHINGTON - Former Senate Judiciary Committee counsel John D. McMickle left his baby on Capitol Hill when he moved into private practice in January.

Working in the trenches of a Judiciary subcommittee since 1995, Mr. McMickle in effect ghost wrote the Bankruptcy Reform Act, a sweeping 484-page bill sponsored by his former boss, Sen. Charles E. Grassley, R-Iowa, and highly sought-after by the financial services industry.

Though creditors are eagerly awaiting the relief from swallowing most of bankruptcy filers' debts, Mr. McMickle cautioned the industry that the measure also would impose tougher disclosure requirements to be spelled out by the Federal Reserve Board.

"Politically, the way this bill works is, Republicans wanted to tighten up the bankruptcy law and make people pay their bills," said the 32-year-old lawyer, now an associate in the Washington firm of Winston & Strawn. "Democrats were willing to go along with that, but they also wanted some new credit card regulations. So the bill contains a pretty expansive set of new regulations on the way credit card companies advertise and offer credit."

He should know. As the self-described "low man on the totem pole" of Sen. Grassley's administrative oversight subcommittee, Mr. McMickle was assigned in 1997 to the "hideously complex" task of overhauling the nation's bankruptcy code, though he was just a few years out of law school.

The soft-spoken Mr. McMickle said he "threw myself into the task of learning bankruptcy law. I got all the reform bills and hearings from 1898 to the present and then read them all."

From behind the scenes, he guided the bill from its drafting through its difficult developmental years, when various interest groups fought over its language, and to the brink of enactment late last year. The bill passed the House and Senate but died in December when former President Clinton refused to sign it into law.

Now the bill is again on the verge of becoming law after swift passage this month in the House and Senate, and President Bush has indicated he supports it. The only snag is a political dispute brewing over composition of the House-Senate committee that will reconcile the two versions.

The disclosure requirements, though, are the same in each version, and it would be the Fed's job to write the implementing rules. The Fed initially was reluctant to do that, Mr. McMickle said.

"We talked to the Fed. They're a little irritated, I think, about all the studies we're giving them to do," Mr. McMickle said. "But it's not the end of the world. The bill has been bubbling around for so long, everybody has already thought about how they are going" to enforce it.

For example, credit card companies and other lenders would have to establish a toll-free number so customers could enter their account balance and interest rate and find out about how much it would cost, and how long it would take, to pay off the principal making only minimum payments.

Within 18 months of the bill's enactment, the Fed would be required to create a detailed table that lenders could use to supply close estimates. The delicate task was assigned to the Fed as part of a political compromise.

"Banks were concerned that if we just told them to tell people how long it's going to take for them to pay off their balances, and if they made a mistake in the calculation, they could be subject to class-action liability under the Truth-in-Lending Act," Mr. McMickle said. "So what we did was make the Fed give them the information they in turn give to their customers. That way, the banks can't be sued for anything."

Big banks also would have to get their 800 numbers up and running 18 months after the bill's enactment.

Mr. McMickle warned that banks should not count on getting more time to get this done. "It wouldn't be Congress' intent, I don't think, for the Fed to extend and extend and extend," he said.

The Fed would have to establish and maintain a toll-free number for two years for the few credit-card issuing institutions with less than $250 million of assets. In addition, the central bank would be required to issue a report to Congress six months before the end of the two years explaining how much of a financial burden it would be for small banks if the Fed shut down the government-sponsored line.

Senate Banking Committee Chairman Phil Gramm "wanted a permanent 800 number for small banks," Mr. McMickle said. "The Democrats didn't want any Fed 800 number. So we said, 'OK, we'll have an 800 number for two years.'

"As a concession to Gramm, the Congress can continue the 800 number if the Fed report shows that it's going to be expensive for small banks."

However, Mr. McMickle predicted that the credit card companies such as Visa and MasterCard will offer free 800 numbers to all issuers and thus eliminate the expense for small banks.

The bill also would authorize the Fed to do a study for recommending additional information financial companies should disclose to consumers and how to make the disclosures understandable to the average person.

The study would be similar to one the central bank has done to make car lease disclosures more user-friendly, and it would have to include suggestions for legislation to carry out the central bank's recommendations, Mr. McMickle said.

Though the study would not be mandatory, it comes highly recommended by lawmakers, he said. "You can bet that members of Congress are going to lean on the Fed to start doing the study."

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